Weekly Fundamentals - 26 August 2017

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 
In conclusion to our report last week we wrote:
“A number of changes in COT readings this week.
YEN has turned from BULLISH to SLIGHTLY BULLISH.
S&P500 from NEUTRAL to BEARISH.
GOLD form CAUTIOUS to BEARISH.
A good indicator to follow is COT readings for the US 30 YEAR BOND which is deteriorating quickly.
The USD Index continues to fail to make new highs. This continues to bode well for precious metals in the long term.
However COT for both gold and silver continue to warrant short term caution.
Commodity backed currencies especially the AUD, CAN$ and NZD continue to be worrying.
 
Therefore our recommendations based on our COT readings for next week are as follows:
Go short the precious metals.
Continue selling the AUD, CAN$ and NZD into strength.
Stay away from risk but be prepared to cover shorts into any meaningful weakness
Watch the 30 YEAR BOND closely.”
 
Now let's see how we fared on our recommendations:
Staying short or flat the precious metals was premature.
Continued selling of the AUD, CAN$ and NZD was given another opportunity.
Staying away from risk and covering shorts on weakness was good.
 
An indifferent to poor week.
 
An extremely quiet week for data except for the USD as this week encompasses the first Friday of the month so we have the usual NonFarm Payroll and Employment change figures.
 
USD:The US$ Index closed down strongly last week.
We start on Tuesday with Consumer Confidence which is expected to fall from 121.1 to 120.3.
On Wednesday we have the GDP number thought to rise from 2.6% to 2.7%. This is followed by Crude Oil Inventories and Thursday sees the release of the usual Unemployment Claims number estimated to rise from 234,000 to 237,000.
Friday is the big day. Average Hourly Earnings is anticipated to fall from 0.3% to 0.2%. NonFarm Payroll is expected to fall from 209,000 to 180,000 and the Unemployment Rate should remain at 4.3%.
Finally Manufacturing PMI is estimated to rise from 56.3 to 56.5.
COT data shows that large commercials slightly decreased their net short position in the US$ Index from -4,814 to -4,670 last week. This is a 52 week extreme so we remain BULLISH.
 
EURO:The EURO closed up strongly against the USD last week.
There is no data for the EURO this week.
COT data for the Euro shows that large commercials increased their net short position last week from -104,369 to -114,526. This remains close to a 52 week low so we remain VERY BEARISH.
 
GBP:The GBP rose slightly against the USD last week.
On Friday we have Manufacturing PMI expected to be 55.0 from the previous 55.1.
COT data shows that large commercials increased their net long position from +33,275 to +44,993 last week. We therefore alter our view from BEARISH to SLIGHTLY BEARISH.
 
YEN:The YEN rose very slightly against the USD last week.
There is no data for the YEN this week.
COT data shows that large commercials decreased their net long position from +89,173 last to +82,791week. We therefore remain SLIGHTLY BULLISH.
 
AUD:The AUD rose very slightly against the USD last week.
On Wednesday we have Private Capital Expenditure expected to fall from 0.3% to 0.2%.
COT data shows that large commercials slightly decreased their net short position from -77,465 to -75,872 last week. This remains close to a 52 week extreme so we remain VERY BEARISH.
 
CNY: Two items for the CNY this week.
On Wednesday we have both Manufacturing and Non-Manufacturing PMI. The former is thought to fall from 51.4 to 51.3 and the latter from 51.1 to 51.0.
There is no COT data for the CNY.
 
COT data of note on products we regularly comment on in our DAILY REPORTS and WEEKLY BONUS VIDEOS and for those products which show large commercials with extreme net positions.
 
RISK:
S&P500: The S&P500 rose reasonably last week. Large commercials increased their net short position from -17,113 to -45,509 last week. We therefore remain BEARISH.
NASDAQ100:The NASDAQ100 rose slightly last week. Large commercials decreased their net short position from -35,508 to -33,014 last week. We therefore remain NEUTRAL.
VIX: VIX closed sharply lower last week.
Large commercials slightly decreased their protection last week decreasing their net long position from +133,035 to +112,271. This remains close to a 52 week extreme so remain BULLISH on risk protection and BEARISH on risk.
 
COMMODITIES:
GOLD: GOLD rose strongly last week. Large commercials increased their net short position from -196,631 to -219,918 last week. As this is now greater than the -200,000 we remain BEARISH.
SILVER: SILVER rose reasonably last week. Large commercials increased their net short position from -48,088 to -55,049 last week. We therefore remain BEARISH.
COPPER: COPPER rose strongly last week. Copper is an important metal as it is a leading indicator for many commodities. Large commercials increased their net short position -37,145 to -41,062 last week. Large commercials generally carry a net neutral position. This is no longer a neutral position. We therefore remain SLIGHTLY BEARISH.
CRUDE OIL: CRUDE fell reasonably last week. Large commercials slightly decreased their net short position from -473,499 to -455,866 last week. We therefore remain SLIGHTLY BEARISH.
 
The gold:silver ratio increased from 75.81 to 75.71 indicating slight silver outperformance last week.

DEBT:
US 30 YEAR BOND: The BOND rose strongly last week. Large commercials increased their net short from -69,815 to -80,140 last week. This is now a 52 week extreme so we therefore remain BEARISH.
 
OTHER FX:
CAN$: The CAN$ rose strongly against the USD last week. Large commercials slightly decreased their net short position from -69,109 to 66,306. This remains close to a 52 week extreme. We therefore remain VERY BEARISH.
NZD:The NZD fell strongly against the USD last week. Large commercials decreased their net short position from -27,585 to -24,620 last week. We therefore remain VERY BEARISH.
AUD/YEN:The AUD fell slightly in this pair. COT data for the AUD showed improvement for the AUD and very slight improvement for the YEN last week. This means that the view towards risk should continue to become more benign over the coming weeks.
 
THOUGHTS FOR NEXT WEEK
No meaningful changes in COT readings this week.
We therefore continue to anticipate meaningful corrections in the precious metal sector especially as large commercials are now net short in excess of 200,000 contracts in gold.
The currencies remain virtually unchanged and we therefore continue to anticipate a USD bounce.
The EURO and the YEN should bear the brunt of this.
 
Therefore our recommendations based on our COT readings for next week are as follows:
Go short the precious metals.
Sell all currencies against the USD concentrating on the EURO and the YEN.
Stay away from risk but be prepared to cover shorts into any meaningful weakness
Watch the 30 YEAR BOND closely.

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